LISBON Portugal's central bank on Tuesday improved its 2013 and 2014 economic outlook, but warned a political consensus was needed for the bailed out country's return to normal market financing after the end of its rescue program in mid-2014.
In its winter economic bulletin, the Bank of Portugal said it expects a slightly more moderate contraction this year of 1.5 percent, which compares to its October forecast of 1.6 percent decline and a government estimate of a 1.8 percent drop.
Next year, it expects the economy to grow 0.8 percent - in line with the government forecast and above its own previous estimate in July of 0.3 percent growth. It should then expand 1.3 percent in 2015.
"These projections confirm the prospects of a gradual recovery of the Portuguese economy ... after a cumulative contraction of around 6 percent in 2011-13," it said, adding though there were still many downside risks to its projections.
The economy started to recover from its worst recession since the 1970s, caused by painful austerity applied under the EU/IMF bailout, in the second quarter of this year. Last year it contracted 3.2 percent.
"The economic forecast encompasses a gradual recovery of internal demand ... and point to robust exports growth even as market share gains will be progressively smaller," the central bank said. It expects exports to grow 5.9 percent this year, 5.5 percent in 2014 and 5.4 percent in 2015.
Internal demand, which is projected to fall 2.7 percent this year, should edge up 0.1 percent in 2014 and rise 0.9 percent in 2015.
The bank said the fiscal and economic adjustment process started under the bailout "has to become permanent in nature" so as to continue to reduce the budget deficit and public debt.
"Portugal's return to stable market financing is a demanding process that requires strict compliance with commitments taken by the country ... Internally, it is fundamental that credible commitments are established in the long run to deepen social cohesion and institutional consensus around the national goals."
(Reporting By Andrei Khalip, editing by Axel Bugge)